An extremist, not a fanatic

June 30, 2011

Pensions, fairness & ideology

If there’s one intellectual position that seems vindicated by today’s public sector strikes, it is that of Alasdair MacIntyre:

We have - very largely, if not entirely - lost our comprehension, both theoretical and practical of morality…we possess no rational way of weighing the claims of one [moral view] against another. (After Virtue, p2, 8)

Let’s be clear. The issue here is not about the “affordability” of public sector pensions; their cost is projected to fall as a share of GDP in coming years. Nor, really, is it about deficit reduction. Even if this were necessary, there are thousands of ways of cutting spending without touching pensions. Instead, what we have is a clash of two conceptions of fairness, of justice. To strikers, the demand that they pay more in pension contributions is unfair because it represents a breach of the implicit contract on which they took the job. To their opponents, the existing generous pensions are unfair because they are much better than most private sector workers get.But as MacIntyre said, there is no rational way of weighing these competing claims. This problem is magnified by cognitive biases - leave aside the obvious vested interests - on both sides.On the strikers’ side, there’s the mix of loss aversion and status quo bias. I suspect that, if we were designing pension schemes from scratch, the government’s proposals would seem acceptable to public sector workers - being, as they are, better than many private sector workers get. But this is not the point of comparison. The proposals are framed relative to what they already have, and so appear as big losses. On the anti-strikers’ side, there’s a different bias - what might be called a resentment effect. Experiments show that people who feel ill-treated in one context are more likely to be ill-disposed to other, separate, people. So, people who have poor pension rights themselves are apt to resent generous public sector pensions, even though the latter don’t explain the former: the demise of private sector pensions has very little to do with teachers’ pensions. There’s no rational way of adjudicating these competing claims. It’s a matter of simple tribalism.In this context, the ConDems’ claim that public pensions are unaffordable - which was ably undermined by Evan Davis - is especially irksome. It is an attempt to disguise what is in fact a tribal position by a claim to some spurious objective “reality”. This, of course, is a standard ideological trick of the ruling class. As MacIntyre put it:

What purport to be objectively-grounded claims function in fact as expressions of arbitrary, but disguised, will and preference (After Virtue, p107)

For years, governments and capitalists have been better able than unions to perform this ideological trick.

Comments

"Experiments show that people who feel ill-treated in one context are more likely to be ill-disposed to other, separate, people. So, people who have poor pension rights themselves are apt to resent generous public sector pensions, even though the latter don’t explain the former: the demise of private sector pensions has very little to do with teachers’ pensions."

But if this is so, why is there so little resentment at the widening wealth and income gaps between top management and the mass of folk working in the private sector? Why is resentment focussed on people at a very similar level of income in the public sector?

There's one further element to the argument, although I don't know how important it is in your context. Generous pensions are a way in which current politicians can buy support--votes from public employees, or the settlement of strikes that inconvenience voters--at the expense of future taxpayers. Hence one would expect current politicians to overspend on them.

Teachers' pensions were adjusted and sorted out a couple of years back. It is a scheme which, in its current form, is sustainable.As a teacher I feel sorry for people in the private sector with inadequate provision as I feel sorry for any disadvantaged group but it has very little to do with me. Perhaps people should have thought twice about opting out of schemes when encouraged by Mrs Thatcher and Mr Major who convinced people they'd be better off with private plans. Lastly, nobody seemed to think the public sector deserved parity with the private when times were good and bonuses were sky high.

There is no "breach of implied contract" since accrued rights in public sector pensions are protected. Furthermore, contributions can, by law, vary according to actuarial need.

There are, however, two "unfair" issues not being addressed. The change from RPI to CPI which the government has allowed affects both private and public sector pensions and this will hit people already in retirement who made plans some time ago.

Secondly, there seems to be no attempt to fix the problem of unfunded pensions. If all public sector pensions were funded (some are), then independent actuarial advice would determine the contribution rate.

1) Lord Hutton has distanced himself from the prediction that pension costs as a % of GDP will fall precisely because it is being widely abused by people who disregard the significant caveats in order to use it against the reform he says is needed. (He was on the Andrew Marr show a coupld of weeks back saying this)

2) Private sector workers do have a stake in the pensions of public sector workers because effectively they are paying for them via taxes, I'm not aware that public sector workers play the same role in the pensions of private sector workers.

I'm not convinced this proves MacIntyre's thesis. In fact, your description of the debate as tribalistic would probably point the other way. Both sides are not necessarily couching their arguments in Enlightenment-style moral terms, but rather - as you identify - in terms of 'fairness'. Fairness can be construed as arrangements necessary for the flourishing of a given aggregate of social networks, the aim of MacIntyre's tiny communities. All this debate demonstrates is that such a mutually agreed conception of 'fairness' is impossible in a society the size of Britain, which MacIntyre does say. However, it's not necessarily evidence of a morally barren nihilistic society.

"Loss aversion"! I love that behavioural economics has given us a brand new term to give a rigorous theoretical basis to the notion that people don't like having their money taken away from them. I think I will go off and nick a carton of cigarettes from my local newsagent and then explain to him that he is experiencing "status quo bias" when he thinks he preferred the old state of affairs when they were in his stockroom.

"But if this is so, why is there so little resentment at the widening wealth and income gaps between top management and the mass of folk working in the private sector? Why is resentment focussed on people at a very similar level of income in the public sector?"

Because it's easier to compare yourself with someone you encounter regularly, and with whose job you have a passing familiarity with.

Plus, you don't see the popular media whipping up a frenzy over directors or MPs pensions (and many in the Coalition will claim both).

When in 1997 when Gordon Brown raised private pensions, did the unions protest?

Did they eck? They lauded him saying more money for you to give to us - which was reflected in Gordon Brown's spending plans - how much of GB's money fountain at the public sector went straight into wage increases?

Anyway here we are with the economy of the last ten years exposed as a bubble driven sham, and guess what we're skint...

And the unions having enjoyed massive largesse now want our sympathy? Not happening..

Their whine that the government is reneging on previous agreements only holds up because the government is both he employer and the executive of changes to the law...

yes very true. But why can't people in the private sector see they should work to ensure everyone has a decent pension. Attacking public sector workers and pensioners is folly. Do they really think that is how you improve the world? What happened to the idea of solidarity?

Its clearly bad for the unity of workers to have a roughly 50-50 split between those with final salary schemes and those without; half the workers dread inflation, the other half are protected.

Do public sector workers on here understand what a fantastic year you had in 2008? For those of us with pensions pots, we saw our pension pots trashed, and annuity rates tank. I reckon my pension provision dropped by about 40%. In terms of converting final salary schemes to a cash equivalent, its quite likely that many long-serving public sector workers had an effective cash payment into their pension pots well in excess of their salaries.

Dipper, unions represent their members. Why would a public sector union have anything to say about what happens in the private sector? As it happens, my private sector union (Connect, now part of Prospect) did raise a stink when our pensions were raided. It was also moderately successful when my employer shut down our final salary scheme.

If you want a union to represent you, join a union. It's not expensive.

yes, agreed and understood. And if I was a public sector worker I'd be very keen to hang on to that pension. But I'm not a public sector worker, so I'm free to have an opinion.

I think the final salary scheme is a bad idea as it is based on the notion that we can make promises about the future, and leave someone else to pick up the bill no matter how the future unfolds. Not very fraternal. Also it leaves workers with a difficult and unnecessary choice based round a split in how pension provision, and hence reduces employment mobility.

It's also a bad idea because it removes choice from public sector workers on how they spend their remuneration. If teachers had the cash equivalent in their salaries they could have bought bigger houses at an earlier age and hence been much better off, for example.

Surely it would be better all round if all workers had the same basis to their pension so workers were free to move between sectors without pension panic setting in?

You miss a very important factor about the relative generosity of public sector pensions. Those of us in the private sector pay the taxes which bump them up to a much higher level than they'd if the schemes depended on investemtnt of contributions.

I don't resent the wealthy people in my town having nicer cars and houses than I do. They've earn more money than me (and pay more tax). But I would resent it if their wealth was due to favourable treatment from the government, using taxpayers money, including mine.

That's effectively the situation with public sector pensions.

The 'resentment effect' in this matter is most noticeable from the striking public sector workers. They obviously resent the possibility that they'll have to finance their own pensions pots just like the rest of us, without extra help from the taxpayer. That smacks of selfishness and greed.

Chris Dillow says “there is no rational way of weighing these competing claims” Oh, come on.

What’s wrong with trying to ensure that pay in the public sector (taking into account employer and employee pension contributions, etc etc) is the same as in the private sector for given skills, job security, hours worked, and so on?

If Pete is financing his pension pot without extra help from the taxpayer, that's impressively selfless. Everybody else enjoys very substantial tax relief on contributions and so gets rather a lot of help from the taxpayer: in effect, for any given tax regime, there is a cross subsidy from those (private and public sector) workers who do not make pension contributions to those (private and public sector) workers who do.

I don't know why tax relief on pension constributions is at all controversial. Pension tax relief is just deferring income to the point at which you choose to take your pension. A significant chunk of the tax take today will be on pension income that incurred tax relief when it was earnings.